G.R. No.

142618 July 12, 2007

PCI LEASING AND FINANCE, INC., Petitioner,

vs.
GIRAFFE-X CREATIVE IMAGING, INC., Respondent.

Facts:

On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement, whereby
the former leased out to the latter two equipment with accessories. Forming parts of the basic lease agreement were
separate documents described that GIRAFFE as the "borrower" who acknowledged that it must pay monthly for thirty-
six (36) months. The agreement embodied a standard acceleration clause if GIRAFFE fails to pay.

GIRAFFE defaulted in its monthly rental-payment obligations. Following a three-month default, PCI LEASING
addressed a pay-or-surrender-equipment demand letter to GIRAFFE. The demand went unheeded. Hence, PCI
LEASING instituted the instant case against GIRAFFE praying for the issuance of a writ of replevin for the recovery
of the leased property. After trial, judgment be rendered in favor of PCI LEASING. The trial court issued a writ of
replevin, paving the way for PCI LEASING to secure the seizure and delivery of the equipment.

GIRAFFE filed a Motion to Dismiss arguing that the seizure of the two leased equipment stripped PCI LEASING of
its cause of action. GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of personal
property, PCI LEASING is barred from further pursuing any claim arising from the lease agreement, adding that the
agreement between the parties is in reality a lease of movables with option to buy. The given situation, GIRAFFE
continues, squarely brings into applicable play Articles 1484 and 1485 of the Civil Code, commonly referred to as the
Recto Law.

In its opposition, PCI LEASING maintains that its contract with GIRAFFE is a straight lease without an option to
buy. PCI LEASING rejects the applicability of Article 1484 in relation to Article 1485 of the Civil Code, claiming
that, under the terms and conditions of the basic agreement, the relationship between the parties is one between an
ordinary lessor and an ordinary lessee.

In a decision, the trial court granted GIRAFFE’s motion to dismiss mainly on the interplay of the following premises:
1) the lease agreement package, as memorialized in the contract documents, is akin to the contract contemplated in
Article 1485 of the Civil Code, and 2) GIRAFFE’s loss of possession of the leased equipment consequent to the
enforcement of the writ of replevin is "akin to foreclosure, … the condition precedent for application of Articles 1484
and 1485.

Issue:

Whether or not the Lease Agreement between the parties are covered by Articles 1484 and 1485 of the New Civil
Code.

Held:

Yes. The PCI LEASING- GIRAFFE lease agreement is in reality a lease with an option to purchase the equipment.
This has been made manifest by the actions of the petitioner itself of which is the declarations made in its demand
letter to the respondent. There could be no other explanation than that if the respondent paid the balance, then it could
keep the equipment for its own; if not, then it should return them. This is clearly an option to purchase given to the
respondent. Being so, Article 1485 of the Civil Code should apply.